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RECOVERY AMID GLOBAL TURMOIL

RECOVERY AMID GLOBAL TURMOIL . DR. RAJEEV DHAWAN DIRECTOR. Presented at the USDOL Conference in Atlanta • April 27, 2011. Egypt. Libya. Japan. Saudi Arabia’s Share in Global Oil Supply. Thousand barrels daily. China’s Growing Appetite for Oil. Three Stages of Oil Price Impact.

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RECOVERY AMID GLOBAL TURMOIL

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  1. RECOVERY AMID GLOBAL TURMOIL DR. RAJEEV DHAWAN DIRECTOR Presented at the USDOL Conference in Atlanta • April 27, 2011

  2. Egypt Libya Japan

  3. Saudi Arabia’s Share in Global Oil Supply Thousand barrels daily

  4. China’s Growing Appetite for Oil

  5. Three Stages of Oil Price Impact Consumers fund extra spending on oil from either cutting back on discretionary items or by dipping into assets (reducing savings) as happened in 1st half of 2008. Once profit margins get impacted substantially businesses choose to pass along the cost, period. This affects consumer confidence and causes a sharp deceleration in growth for a few quarters, but no recession. Business confidence suffers, leading to a drop in capital spending or investment (1970’s oil shocks, 1990 Saddam invading Kuwait). The severity of the recession depends upon how “aggressive” the Fed is with its rate hikes in dealing with the rise in oil price as in 1973 or was already on a tightening bend as in 1989-90.

  6. Current State of the Economy

  7. Why is the Unemployment Rate Falling?

  8. Forecast Perspective

  9. Case-Shiller Home Price Index Regression Long-Term Trend

  10. Home Price Expectations and Starts Home Price Expectations Survey High Median Low Source: MaroMarkets Home Price Expectations Survey, March’11

  11. …Making Them Cautious Buyers

  12. Red Flag Over China They’re on this treadmill to hell because 50% to 60% of GDP is construction. And if they stop construction, you’ll see GDP growth go negative quickly. Jim Chanos President, Kynikos Associates Source: Business Week, April 19, 2010

  13. FOMC’s December Statement To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate…. The Committee…. intends to purchase a further $600 billion of longer-term Treasury securitiesby the end of the second quarter of 2011. Source: FOMC statement & FRB of NY, November 3, 2010

  14. Quantitative Easing: The Second Round (QE2)

  15. World Inflation

  16. Inflation Worries?

  17. So What Creates Jobs? Bernhard Hodler : Modul 8: Thema 2

  18. 2003-2007 Job Growth: 132K/Month Golden 90’s Job Growth: 240K/Month 12% 6% -15% 2008-2009 Job Loss: 400K/Month +12% 2010 Jobs: 87K/Month

  19. Job Growth and Tech Investment Employment growth (Job additions) Harold Vasquez Research Specialist Economic Forecasting Center Georgia State University Rajeev DhawanProfessor & Director Economic Forecasting Center Georgia State University TECH: 1% TECH 0.059%  EMP: • The improvements in CEO’s perceptions about the future increases TECH investment spending. • TECH investment significantly increases employment growth via durable goods ORDERS channel. ORDERS: 1% ORDERS  0.45%  TECH CEO: 1% CEO  0.034%  TECH 1% CEO  0.11%  ORDERS Source: U.S. Employment Growth and Tech Investment: A New Link By Rajeev Dhawan & Harold Vasquez, 2010

  20. Dow30 Revenue Growth and Job Gains (%, Y-O-Y) (‘000 Jobs)

  21. CISCO vs. Walmart Revenue Growth

  22. A Confounding Regional Recovery

  23. State of the Southeast Region

  24. Triangle of Money Income Real Estate & Construction Jobs

  25. Source: U. S. Census Bureau

  26. Georgia Tax Collections Source: Georgia Department of Revenue. *YTD FY-11 corresponds to March 2011

  27. Georgia’s Leading Employment Sectors

  28. Atlanta News • SecureWorks, subsidiary of Dell Inc., will add 200 high-tech jobs • Hwelett-Packcage Co. is building a 60,000-square-foot facility in Fulton county • Novelis, aluminum manufacturer, will add Professional & Business jobs (?) to Atlanta metro area • Merrill Lynch announced that it will expand significantly (?)its workforce by hiring financial service professionals in Atlanta • Wal-Mart Storeswill locate the hub for its eastern business unit (with 1,600 stores in 20 states) in Atlanta • CCH Small Firm Services will consolidate its operation in Kennesaw, adding 200 jobs • CCP Games will move its headquarter to Atlanta, adding 150 high-tech jobs • Chase Bank will open 12 new branches in Atlanta metro area, adding 170 jobs • Lockheed will add 400 jobs in Marietta as it expands its C-130 and C-5 cargo aircraft production

  29. 10-Year Change: 1.3 Million (30.4%)

  30. Population Change in Atlanta 10-Year Growth 67.3% 10-Year Growth 9.2%

  31. Net Migration in the Southeast Source: U. S. Census Bureau

  32. Recovery From a Deep Recession: LA vs. ATL

  33. But First We Got a Tax Gift! Most notably, the inclusion in the White House tax compromise of a one-year payroll holiday that trims everyone’s social security taxes by 2%. That’s a very front-loaded tax cut – it will add to household cash flow starting immediately on January 1, 2011. Source: PIMCO Economic Outlook, December 2010

  34. PIMCO’s El-Erian Airing Bond Vigilante Concern Officials must explain how further short-term deterioration in America’s budget deficit will eventually give way to medium-term fiscal responsibility. Source: Bloomberg, December 7, 2010

  35. Erskine Bowles and Alan Simpson Bowles:It’s frightening. We’ll be paying a trillion dollar in interest costs in 2020. How did we get here? Simpson:I can tell you exactly how we got here. For the last 75 years we were sent to Washington to bring home the bacon. If they got it, they were reelected. Source: Bloomberg Businessweek, November 22, 2010

  36. Conclusions • Middle-East unrest will impact global recovery if oil supply is disrupted which affects confidence levels • Health of China is a concern for the world economy and for our treasury auction market • Fed’s QE2 will keep a lid on long-term rates but not for long; Federal deficit pressures eventually push rates up • Home price appreciation or rather lack of it makes for a cautious consumer • Metro economy can’t dodge global headwinds but is in better shape than Florida; Manufacturing, Healthcare, Transportation sectors and export related businesses will do well; Banking woes impede small business growth

  37. Special Thanks to the Center’s Executive Sponsors Carl R. Zwerner Chair of Family Owned Businesses Sponsors

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